GMP equalisation – trustees can maintain the status quo… for now

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The question of whether (and how) to equalise Guaranteed Minimum Pensions (GMPs) as between male and female members of occupational defined benefit (DB) pension schemes has troubled pensions professionals for many years.

Following a recent Pensions Ombudsman case, trustees of such schemes need not take action to equalise GMPs until the Government issues guidance or enacts legislation requiring them to do so.

Why are GMPs unequal?

Prior to 1997, DB contracted out schemes were required to provide a GMP in respect of contracted out service. GMPs are inherently unequal as between the sexes, because of the different state retirement ages which have applied to men and women in the past. Most schemes pay benefits which are in excess of GMP and which in their entirety have been equalised as a consequence of the judgment of the European Court in the Barber case[1]. However GMPs are revalued prior to a member’s retirement age and increased thereafter differently as between men and women, because of the differing retirement ages at which GMPs come into payment. The way in which they are paid is set out in law and although opinions are divided, the prevailing wisdom is that there is not currently a legal obligation on trustees to equalise GMPs payable from their scheme.

The Ombudsman’s decision

Dr Kenworthy was a member of the Campden R.A. Pension Scheme (the Scheme). His complaint to the Ombudsman concerned the calculation of his deferred pension; he felt that the calculation was performed incorrectly. In addition, in Dr Kenworthy’s view, the trustees’ and the actuary’s interpretation of one of the Scheme rules treated male members less favourably than female members, (contrary to section 67 of the Equality Act 2010). He noted that in a previous Ombudsman’s decision[2] , the Ombudsman had stated that:

“As GMPs are not expressly excepted from the application of the equal treatment rule then, in my judgment, by virtue of that rule, they must be equalised.”

The Ombudsman noted that in a High Court case decided after the Williamson decision [3], the judge ruled that the Ombudsman did not have the jurisdiction to make the ruling in Williamson. In the judge’s view, provided the pension as a whole was equalised, the individual components did not have to be, but he did not make a definitive ruling on the question of whether legislation requires GMPs to be equalised and, if so, how it should be done.

As a consequence of the High Court case, the Ombudsman in the Kenworthy decision was not able to rely on the Williamson decision. He ruled that the trustees and the actuary need not take action to equalise GMPs until The Department for Work and Pensions (DWP) pronounces on the issue.

What should trustees do now?

Consultation and discussion on the issue of the equalisation of GMPs have been continuing for five years without a firm view being announced by the Government. During the DWP’s consultation with the pensions industry in 2012, significant concern was expressed about the DWP’s proposed approach, which was thought to be unclear, unwieldy and disproportionately expensive. Since then expected announcements have been delayed.

For trustees and advisers, the Ombudsman’s decision in Kenworthy provides comfort that until the Government publishes guidance or legislation on the matter, there is no requirement for occupational DB pension schemes to equalise GMPs. The Government may introduce a recommendation to equalise in due course, but for now at least, the question of how to treat unequalised GMPs can be deferred without fear of being criticised.